I-T pegs tax evasion by insurance companies, intermediaries at ₹30,000 cr

New Delhi, Oct 12, 2023

Synopsis
The department is in the process of sending tax demand notices to these entities to recover the dues, people aware of the details told ET. The amount could increase once interest and penalties are levied, they said. "We are sending demand notices along with penalty and interest to companies separately and they will get the mandated time to respond to them or contest them," a senior official said.

Insurance companies and their intermediaries allegedly evaded nearly ₹30,000 crore in income tax since July 1, 2017 (since inception of GST) by suppressing income and showing fake expenditure, according to an internal income tax department assessment.

The department is in the process of sending tax demand notices to these entities to recover the dues, people aware of the details told ET. The amount could increase once interest and penalties are levied, they said.

"We are sending demand notices along with penalty and interest to companies separately and they will get the mandated time to respond to them or contest them," a senior official said.

The assessment officer will decide the amount of interest and penalty.

Last year, the income tax department initiated a probe, together with the Directorate General of GST Intelligence (DGGI), after discovering that some insurance firms were circumventing regulations on commissions, paying more than what is permitted to agents and intermediaries. Such payments were done against invoices that the officials said were fake.

The income tax department probed the loss of income tax due to the allegedly inflated expenditure.

"There were also instances of fake CSR expenditure, showing events which never took place and highly inflated advertising and event bills for which we have got all the transaction details," another official said. The initial probe covered 30 insurance companies, 68 tax agents, and intermediaries. The probe was later extended to include many banks that had worked as insurance intermediaries across the country. In the case of banks that acted as intermediaries, the probe found that the insurance companies paid the manpower supply costs of the banks, which were never reflected in the books of banks.

This amounts to non-disclosure, which is a severe violation under the I-T laws, the second official added. The DGGI was looking into instances of insurers claiming input tax credit without the underlying supply of goods and services, allegedly using fake invoices provided by intermediaries. The DGGI said this caused GST evasion of ₹3,500 crore. "This was a joint probe and an example of data sharing which we did with the DGGI, which backed the probe with data and evidence," he said.

ET reported in August that the income tax probe was almost over, and the findings were being shared with the respective jurisdiction and the assessing officers.

[The Economic Times]